GW Pharmaceuticals (GWPH) announced on Monday that it had received approval to sell its epilepsy drug in the world's largest market, as measured by GDP.
The European Commission gave its approval for GW Pharmaceuticals to sell EPIDYOLEX in the EU. This is the same drug used to treat the same conditions associated with epilepsy in the U.S., where it's branded as EPIDIOLEX; they're both the same drug.
While GWPH stock is down a whopping 35% since May's high, Wall Street analysts still see a significant turnaround. Out of 8 analysts polled by TipRanks in the last 3 months, all 8 are bullish on the stock. With a healthy return potential of 77%, the stock’s consensus target price stands at $224.38. (See GWPH's price targets and analyst ratings on TipRanks)
Great growth potential
Even though the EU only accounts for less than seven percent of the global population, its GDP is the largest in the world. The EU also has an overall favorable outlook toward cannabis-based products, and also in some cases, cover them with insurance, such as in Germany. They also tend to command higher prices as well. It remains to be seen whether or not the price of EPIDYOLEX will find higher price points than its U.S. counterpart, but even if it doesn't, this is a huge win for GW Pharmaceuticals.
One interesting aside here is how this will play out with Brexit approaching. That's important because the UK hasn't been as enthusiastic over EPIDYOLEX as the rest of the EU has been, and once it leaves the economic bloc, it could result in a period of time before it is allowed to be sold in the UK.
The National Health Service (NHS) admits that EPIDYOLEX reduces the frequency of seizures, but has questions about the long-term effect of the treatment, which at this time it considers an unknown. Other concerns were pointed out in regard to "the way the company modeled the effect on patients living longer or having a better quality of life."
But when NICE Director Meindert Boysen said it wants to work with GW to deal with economic modeling issues, it suggests the real issue concerns the NHS getting a larger discount in order to cut costs to the agency.
With or without the UK, the EU still represents a formidable market that is going to generate a lot more sales for GW in the future.
What EPIDYOLEX/EPIDIOLEX does
EPIDYOLEX/EPIDIOLEX are used as a treatment for seizures associated with Lennox‑Gastaut syndrome or Dravet syndrome. EPIDYOLEX is the first cannabidiol oral solution to be approved of by the European Medicines Agency.
It is derived from CBD, which means it doesn't have any significant amount of THC in it, which is what makes users high.
EPIDYOLEX will be used in conjunction with clobazam as part of the treatment. Patients have to be two years of age or older in order to be treated.
Approval for the treatment came after results from "four randomised, controlled Phase 3 trials." It included over 714 patients that had either LGS or Dravet syndrome.
The two conditions have been found to be significantly resistant to existing drug treatments.
Chairman, Dravet Syndrome European Federation, Isabella Brambilla, said this:
“The approval of cannabidiol oral solution is an important milestone for patients and families whose lives are significantly impacted by these rare, complex and life-long forms of epilepsy. We are very happy that patients will now have access to a much-needed, new treatment option, and one routed through a rigorous clinical trials program and licensed by the EMA.”
There has been high demand for an alternative to existing treatment options that have a chance of better controlling seizures and providing a better quality of life for all affected by the two conditions.
With the mortality rates being high and the huge burden on families from the need to monitor loved ones because of the risk of injuries and falls from the condition, it is a long-term treatment that will benefit GW and the patients using EPIDYOLEX.
The approval in the EU is important because it provides a strong revenue stream for GW while it develops its potentially formidable pipeline. It's already working on the development of Sativex.
Other treatments it's working on include symptoms associated with autism, epilepsy, glioblastoma and schizophrenia. Those are now in Phase 1, 2 and 3 trial stages. When considering the number of people within the autism spectrum alone, it represents an enormous market. Estimates are that 1 percent of the global population has autism spectrum disorder. In America, about 3.5 million citizens live with it. Costs in the U.S. for adult services are from $175-196 billion, with costs for children in a range of $61-66 billion.
There is growing demand for alternatives to potentially addictive drugs that have in many cases have severe side effects. GW has an opportunity to meet a portion of that demand, even though I expect the traditional medical community to try to crush it to protect their interests.
Nonetheless, I see CBD-based treatments as being unstoppable, and at best they will be slowed down, and in some cases, as with EPIDIOLEX, rapidly approved of because of superior results and weaker side effects.
With a pipeline like it has and the approval by the EU for EPIDYOLEX, GW has a visible and strong growth trajectory ahead of it.
In the second quarter, Epidiolex generated net sales of $68.4 million for the company, up 204 percent sequentially. With total sales of $72 million in the quarter, it represented sales that were over 2,000 percent higher year-over-year.
Expectations are the company will also be given approval to treat Tuberous Sclerosis Complex some time in 2020. This disorder brings about noncancerous tumors that spread throughout the body. A side effect of TSC is epilepsy. GW Pharma estimates there are up to 80,000 Americans that have the condition, as possibly 2 million around the world.
According to investment bank Evercore ISI, peak sales in the U.S. for Epidiolex will reach close to $1.3 billion. Assuming at least a similar level of sales in the EU, it shows the potential growth GW has in the near term, not taking into account its pipeline.
Assuming it gets the go ahead to treat Tuberous Sclerosis Complex, it will provide revenue streams as it works on getting other treatments in its pipeline approved.
In the first half of 2019, the company had an operating loss of $80.7 million, but that was down 46 percent year-over-year. That should continue to improve going forward, as GW scales into the EU.
With a visible revenue stream from EPIDIOLEX and sales in the EU from EPIDYOLEX coming in the near future, combined with probable sales coming from Tuberous Sclerosis Complex, along with a pipeline with a lot of potential, it's apparent GW Pharmaceuticals is a company with a lot of growth left in it.
With a Smart Score of ‘9’, this is a company with multiple positive datapoints, including a Strong Buy analyst consensus and positive activity from bloggers and hedge funds. Get the GWPH stock research report.